Question 1

Brainstorming What are the steps of the brainstorming process?

Accepted Answer

The answer of Brainstorming What are the steps of the...

Question 2

The risk of material misstatement refers to which of the following?
A)Inherent risk.
B)Control risk and acceptable audit risk.
C)The combination of inherent risk and control risk.
D)Inherent risk and audit risk.

Accepted Answer

The risk of material misstatement is the combination of inherent risk and control risk. Inherent risk refers to the risk that exists in the entity's financial statements due to the nature of the transactions or events being recorded, while control risk refers to the risk of a material misstatement in the financial statements not being prevented, detected, or corrected on a timely basis by the entity's internal controls. Acceptable audit risk is the risk that the auditor is willing to accept that the financial statements may contain a material misstatement after the audit is completed. Therefore, while all of the answer choices are relevant to audit risk, only choice C correctly identifies the risk of material misstatement as the combination of inherent risk and control risk.

Question 3

In which of the following situations will auditors typically rely on internal controls over financial reporting?
A)Only as needed to satisfy SOX.
B)Only if the controls are determined to be designed and operating effectively.
C)Only if the clients asks the auditor to test controls.
D)Only if the controls are sufficient to increase control risk to an acceptable level.

Accepted Answer

Auditors will typically rely on internal controls over financial reporting only if the controls are determined to be designed and operating effectively. This is because relying on ineffective controls can increase the risk of material misstatements in the financial statements, which could lead to audit failures or legal implications for the auditor. Therefore, auditors will only rely on internal controls that they believe will provide sufficient assurance over the accuracy and completeness of financial information.

Question 4

Relationships between risks Identify how an increase in each of the following factors (assuming the other factors remain unchanged)will affect planned audit evidence.

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Question 5

Qualitative reasons for materiality List the reasons why an amount that is quantitatively immaterial might be considered material due to qualitative reasons.

Accepted Answer

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Question 6

Which of the following statements is false?
A)Inherent risk is inversely related to the amount of audit evidence,whereas detection risk is directly related to the amount of audit evidence required.
B)Inherent risk is directly related to evidence,whereas detection risk is inversely related to the amount of audit evidence required.
C)Inherent risk is the susceptibility of the financial statements to material misstatement,assuming no internal controls.
D)Inherent risk and control risk are assessed by the auditor and controlled by the client.

Accepted Answer

The answer of Which of the following statements is false?
A)Inherent...

Question 7

The auditor's consideration of internal control over financial reporting affects which of the following?
A)The nature,timing,and extent of substantive testing to perform.
B)Inherent risk in the account balance.
C)An acceptable level of control risk for an account balance.
D)Both B and C.

Accepted Answer

The auditor's consideration of internal control over financial reporting primarily affects the nature, timing, and extent of substantive testing to perform, as it helps determine the level of reliance on controls and the necessary audit procedures.

Question 8

Inherent risk List some factors that would lead an auditor to assess inherent risk relating to operations at a higher level.

Accepted Answer

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Question 9

Importance of materiality judgments Explain the differences between performance materiality and tolerable misstatement.

Accepted Answer

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Question 10

Predecessor auditor Discuss the required communications between predecessor and successor auditors.

Accepted Answer

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Question 11

Risk Responses When considering risk responses,what steps should the auditor take?

Accepted Answer

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Quiz 7: Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Brainstorming What are the steps of the brainstorming process?

The risk of material misstatement refers to which of the following?

In which of the following situations will auditors typically rely on internal controls over financial reporting?